With the pandemic, industry leaders recognized the increased need to introduce AI into HR and therefore upgraded HR systems by investing in new technologies. Many believe that these investments will determine the success of the HR department.
In fact, while more than 33% of HR leaders are expected to reduce their HR budget, approximately 90% plan to increase their HR technology budget, according to a 2021 study by Gartner.
Due to this huge demand for HR transformation, the demand for investment in technology is even greater than last year. Experts say that some of the technologies that organizations can consider upgrading or implementing can be HR information systems (HRIS), learning management technology, employee experience platforms and AI in HR for recruiting, hiring, and compensation-related work.
Harish Mahadevan, Vice President – HR, CredR, says, “To truly optimize productivity and keep employees happy, it is essential to create an environment that is tailored to specific employees. That’s why many forward-thinking organizations are budgeting for employee experience platforms, artificial intelligence (AI) technology, and virtual reality (VR) training solutions to personalize the employee experience. »
This allows HR leaders to respond to each individual’s strengths and weaknesses, help them grow professionally, and keep them engaged at work, given how personalization has captured all the attention since the beginning of the pandemic.
What percentage of a company’s overall spend is budgeted for the HR department?
Different companies have different budget allocations depending on their product and years of existence. For example, approximately 60-65% of Go Digit General Insurance’s total expenses are typically budgeted for employee compensation, recruiting, training, employee insurance, and related expenses. Some of the metrics that are key drivers of HR budgeting in the business include talent acquisition costs, employee turnover, employee engagement levels, NPS for teams, and training.
However, for SaaS companies, the HR budget can easily vary by 30-50% of the total allocation, according to Anshika Khaitan, human resources manager at Vymo.
“Salaries make up a large portion of total expenses for SaaS companies,” says Khaitan. But again, the split also depends on what other areas the company is spending in and the stage of growth. Real estate, for example, is a big cost center, but after the pandemic, a few companies are moving away altogether. This creates the opportunity to shift these funds towards employee welfare. Therefore, the percentage of the HR budget can still increase as the company spends.
At Vymo, the HR budget is made up of three main components: recruitment makes up just over half of it; HR Tech is around 10%; and L&D, benefits and engagement combined at around 35%. For the company, HR technology represents a significant part of the overall budget. “Over the past two years, due to the pandemic, organizations have resorted to working from home, which has resulted in a lot of expense on technology tools. This is because the latter acts as our workspaces and helps us collaborate, engage, stay up to date, and be knowledgeable in a remote work setup. mentions Khaitan.
The critical point is to ensure that each compartment of the budget must be well designed to reflect the philosophy of the organization and not convey contradictory messages, otherwise the value of the investment is lost.
Who decides on the HR Tech budget?
Given that HR technology is already gaining a lot this year in terms of budget allocations, it is perhaps essential to understand that when deciding the budget for HR technology, besides the HR manager, what other CXOs play a role major and what is the nature of their contribution and participation?
As far as we know, it’s safe to say that HR technology is impacting almost every function in the organization. Therefore, it can be said that when deciding the HR technology budget, in particular, the feedback and contributions of various team members and vertical leaders are considered during the budget planning process.
For example, at eClerx Services, the decision to decide the HR technology budget rests with HR along with the company’s CTO and CFO. “Our employees expect a digitized work environment that reflects the personalization, agility and collaboration they experience outside of work. The HR technology stack touches every employee in the organization and at all levels. It is central to the employee experience as organizations prepare for the evolution of hybrid work models,” said Amir Bharwani, Chief Human Resources Officer, eClerx Services.
Although eClerx has invested significantly over the past two years, now in the third year of the pandemic, the company will continue to review interventions that may require additional investment – in the context of a hybrid configuration to long term, especially for building social capital and engaging a remote workforce.
“The business case for HR technology investments resides within the HR function, and partnering with the CTO and CFO is a crucial role in assessing scalability, integrating with existing systems and justifying its return on investment,” adds Bharwani. Although the company is still deciding on the budget for the next fiscal year, it expects this budget to be greater than the total HR operational expenses for the current fiscal year.
Similarly, at Vymo, the business leader provides input to set business priorities. This allows the company to identify the technology investments that will be needed to maintain them and the new investments that need to be made to align them with employee goals.
Khaitan says that at Vymo, the CFO plays a crucial role in maintaining a balance between the current state of business and projections. He/she also defines the investment the company can make in the space, which helps the HR department create a priority list of priority areas. “The approach is to create a reasonable and pragmatic budget. The IT manager plays a key role in understanding the integration of various tools for seamless data integration and exchange. They also help validate the security of data and information in accordance with our security code of conduct,” adds Khaitan.